Are home warranty companies worth the money?

Are warranty companies worth the money? This question is most often asked when buying a new home or landlording a rental property. Here are a few tips to help you navigate the decision-making process. Everyone's needs are different. One home may be older and forecasting several repairs on the horizon, while a newer home may not be in need of any repairs or appliance replacements any time soon.

Read reviews online: Yelp, online forums

Had my neighbor read reviews of the contractor that the warranty company sent out (see below), she would have been able to avoid a world of trouble that involved the contractors getting arrested and causing over $6,000 in damages to her floors, ceiling and furniture. To add insult to injury, the owner of the contracting company refused to give up his insurance company information -- that is, until I got involved.

Shop around, compare and read the warranty contracts

This is important when comparing each company in order to determine their overall value based on your needs, in addition to understanding your rights and obligations. Do they cover the AC if it needs to be replaced? What specific parts do they cover? For example, the AC in one of our rental properties went out and the warranty company wanted to charge $800 to use a part the contractor said was discontinued. We did some research and found the part -- it was not discontinued. And, we were able to ask the warranty company to send out a new company that had the part needed to repair the AC. Had we not read through the contract, we would have missed smaller details that would have prevented us from doing more research into our options.

Vet the contractors

This summer I was witness to my neighbor suffering the consequences of her warranty company sending out unlicensed contractors to her home. They started soldering the air conditioner part near the sprinkler which set it off. As a result her 2nd floor flooded to the 1st floor and the water damage was major. The fire marshall came to the scene and the unlicensed contractors were arrested and charged.

While the out of pocket costs were minimal due to my neighbor having home owner's insurance, the inconvenience of being displaced along with her house guests was major. As I helped her call the insurance company and sort things through, I read through a few reviews on Yelp and not even one year ago, there was a reviewer speaking of having the same exact issue with this company. Not only did the warranty company have bad reviews for sending out unlicensed contractors, the contracting company itself had bad reviews around the same sprinkler system issue where they were soldering near the AC unit, setting it off.

Do your home work. Warranty companies can save you a ton of money or cost you dearly. The difference is in understanding what you're responsible for and vetting all parties involved.